POSTMEDIA NETWORK CANADA CORP. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

POSTMEDIA NETWORK CANADA CORP. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016 (UNAUDITED) Approved for issuance: January 11, 2018 1

POSTMEDIA NETWORK CANADA CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016 (In thousands of Canadian dollars, except per share amounts) 2017 2016 (note 6) Revenues Print advertising 91,125 110,997 Print circulation 58,013 61,786 Digital 31,289 27,322 Other 8,563 10,656 Total revenues 188,990 210,761 Expenses Compensation 66,364 85,421 Newsprint 10,801 13,134 Distribution 35,461 39,189 Production 22,048 19,271 Other operating 30,405 34,022 Operating income before depreciation, amortization, impairment and restructuring (note 3) 23,911 19,724 Depreciation 5,335 6,428 Amortization 3,389 4,097 Impairment (note 8) - 21,592 Restructuring and other items (notes 4, 5 and 10) 6,924 35,983 Operating income (loss) 8,263 (48,376) Interest expense 7,552 7,901 Gain on disposal of operations (note 4) (4,676) - Gain on debt settlement (note 5) - (78,556) Net financing expense relating to employee benefit plans (note 12) 735 1,471 (Gain) loss on disposal of property and equipment and asset held-for-sale (note 7) (1,542) 513 Gain on derivative financial instruments (note 14) (3,100) (183) Foreign currency exchange losses 3,521 4,728 Earnings before income taxes 5,773 15,750 Provision for income taxes - - Net earnings from continuing operations 5,773 15,750 Net earnings from discontinued operations, net of tax of nil (note 6) - 2,085 Net earnings attributable to equity holders of the Company 5,773 17,835 Earnings per share from continuing operations (note 13): Basic $ 0.06 $ 0.10 Diluted $ 0.06 $ 0.10 Earnings per share from discontinued operations (note 13): Basic $ - $ 0.01 Diluted $ - $ 0.01 Earnings per share attributable to equity holders of the Company (note 13): Basic $ 0.06 $ 0.11 Diluted $ 0.06 $ 0.11 The notes constitute an integral part of the interim condensed consolidated financial statements. 2

POSTMEDIA NETWORK CANADA CORP. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016 (In thousands of Canadian dollars) 2017 2016 (note 6) Net earnings attributable to equity holders of the Company 5,773 17,835 Amounts not subsequently reclassified to the statement of operations from continuing operations Net actuarial gains on employee benefits, net of tax of nil (note 12) 14,382 40,888 Other comprehensive income 14,382 40,888 Comprehensive income attributable to equity holders of the Company 20,155 58,723 Total comprehensive income attributable to equity holders of the Company: Continuing operations 20,155 56,638 Discontinued operations - 2,085 Comprehensive income attributable to equity holders of the Company 20,155 58,723 The notes constitute an integral part of the interim condensed consolidated financial statements. 3

POSTMEDIA NETWORK CANADA CORP. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (In thousands of Canadian dollars) As at November 30, 2017 As at August 31, 2017 ASSETS Current Assets Cash 14,433 10,848 Restricted cash (note 7) 5,707 67,751 Accounts receivable 86,913 74,180 Asset held-for-sale (note 7) - 8,292 Inventory 5,760 6,001 Prepaid expenses and other assets 10,975 11,502 Total current assets 123,788 178,574 Non-Current Assets Property and equipment 189,536 194,758 Derivative financial instruments (note 14) 4,365 1,265 Other assets (note 12) - 1,508 Intangible assets (note 8) 85,415 85,613 Total assets 403,104 461,718 LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued liabilities (note 9) 62,710 59,778 Provisions (note 10) 20,660 23,400 Deferred revenue 30,253 33,268 Current portion of long-term debt (note 11) 10,000 79,502 Total current liabilities 123,623 195,948 Non-Current Liabilities Long-term debt (note 11) 269,731 261,761 Employee benefit obligations and other liabilities (note 12) 74,021 89,030 Provisions (note 9) 1,692 1,097 Total liabilities 469,067 547,836 Deficiency Capital stock 810,836 810,836 Contributed surplus 10,412 10,412 Deficit (887,211) (907,366) Total deficiency (65,963) (86,118) Total liabilities and deficiency 403,104 461,718 The notes constitute an integral part of the interim condensed consolidated financial statements. 4

POSTMEDIA NETWORK CANADA CORP. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY (UNAUDITED) FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016 (In thousands of Canadian dollars) 2017 Capital stock Contributed surplus Deficit Total Equity Balance as at August 31, 2017 810,836 10,412 (907,366) (86,118) Net earnings attributable to equity holders of the Company - - 5,773 5,773 Other comprehensive income - - 14,382 14,382 Comprehensive income attributable to equity holders of the Company - - 20,155 20,155 Balance as at November 30, 2017 810,836 10,412 (887,211) (65,963) 2016 Capital stock Contributed surplus Deficit Total Equity Balance as at August 31, 2016 535,468 10,315 (1,024,225) (478,442) Net earnings attributable to equity holders of the Company - - 17,835 17,835 Other comprehensive income - - 40,888 40,888 Comprehensive income attributable to equity holders of the Company - - 58,723 58,723 Share-based compensation plans (note 5) - 97-97 Shares issued (note 5) 275,558 - - 275,558 Share issuance costs (note 5) (190) - - (190) Balance as at November 30, 2016 810,836 10,412 (965,502) (144,254) The notes constitute an integral part of the interim condensed consolidated financial statements. 5

POSTMEDIA NETWORK CANADA CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016 (In thousands of Canadian dollars) CASH GENERATED (UTILIZED) BY: 2017 2016 OPERATING ACTIVITIES Net earnings attributable to equity holders of the Company 5,773 17,835 Items not affecting cash: Depreciation 5,335 6,428 Amortization 3,389 4,097 Impairment (note 8) - 21,592 Gain on disposal of operations (note 4) (4,676) - Gain on debt settlement (note 5) - (78,556) Gain on derivative financial instruments (note 14) (3,100) (183) Non-cash interest 3,822 2,589 (Gain) loss on disposal of property and equipment and asset held-for-sale (note 7) (1,542) 513 Non-cash foreign currency exchange losses 3,536 5,227 Non-cash backstop commitment fee (note 5) - 5,500 Share-based compensation plans and other long-term incentive plan expense (note 5) - 202 Net financing expense relating to employee benefit plans (note 12) 735 1,471 Employee benefit funding in excess of compensation expense (note 12) (59) (80) Net change in non-cash operating accounts (note 15) (15,671) (24,554) Cash flows used in operating activities (2,458) (37,919) INVESTING ACTIVITIES Net proceeds from the sale of property and equipment and asset held-for-sale (note 7) 9,829 1,132 Purchases of property and equipment (149) (879) Purchases of intangible assets (239) (374) Cash flows from (used in) investing activities 9,441 (121) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt (note 5) - 110,000 Repayment of long-term debt (notes 5, 7 and 11) (79,442) (77,784) Restricted cash (note 7) 62,044 3,677 Advances from ABL Facility (note 11) 14,000 - Debt issuance costs (note 5) - (942) Share issuance costs (note 5) - (190) Cash flows from (used in) financing activities (3,398) 34,761 Net change in cash for the period 3,585 (3,279) Cash at beginning of period 10,848 17,139 Cash at end of period 14,433 13,860 2017 2016 Supplemental disclosure of operating cash flows Interest paid 8,816 33,984 Income taxes paid - - The notes constitute an integral part of the interim condensed consolidated financial statements. 6

POSTMEDIA NETWORK CANADA CORP. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016 (In thousands of Canadian dollars, except as otherwise noted) 1. DESCRIPTION OF BUSINESS Postmedia Network Canada Corp. ( Postmedia or the Company ) is a holding company that has a 100% interest in its subsidiary Postmedia Network Inc. ( Postmedia Network ). The Company was incorporated on April 26, 2010, pursuant to the Canada Business Corporations Act. The Company s head office and registered office is 365 Bloor Street East, 12 th Floor, Toronto, Ontario. The Company s operations consist of both news and information gathering and dissemination operations, with products offered in local, regional and major metropolitan markets in Canada through a variety of print, web, tablet and smartphone platforms, and digital media and online assets including the canada.com and canoe.com websites and each newspaper s online website. The Company supports these operations through a variety of centralized shared services. On November 27, 2017, the Company purchased 22 community and two free daily commuter newspapers and in consideration sold 15 community and two free daily commuter newspapers (note 4). On August 15, 2017, the Company sold Infomart, its media monitoring division (note 6). The Company has one operating segment for financial reporting purposes, the Newsmedia segment. The Newsmedia segment s revenue is primarily from print and digital advertising and circulation/subscription revenue. The Company s advertising revenue is seasonal. Historically, advertising revenue and accounts receivable are typically highest in the first and third fiscal quarters, while expenses are relatively constant throughout the fiscal year. 2. BASIS OF PRESENTATION These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including International Accounting Standard ( IAS ) 34 Interim Financial Reporting. The accounting policies applied in the preparation of these interim condensed consolidated financial statements are the same as those used in the Company s annual consolidated financial statements. In addition, these interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and accordingly should be read in conjunction with the Company s consolidated financial statements for the years ended August 31, 2017 and 2016. These interim condensed consolidated financial statements were approved by the Board of Directors (the Board ) on January 11, 2018. Critical accounting estimates The preparation of financial statements in accordance with IFRS requires management to make estimates, assumptions and judgements that affect the reported amounts of assets and liabilities, related amounts of revenues and expenses, and disclosure of contingent assets and liabilities. Although these estimates, assumptions and judgements are based upon management s knowledge of the amount, event or actions; actual results could differ from those estimates, assumptions and judgements. The critical accounting estimates are not materially different from those disclosed in the Company s consolidated financial statements for the years ended August 31, 2017 and 2016 except for the estimate of the non-monetary consideration transferred in the business acquisition as described in note 4. 7

3. OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, IMPAIRMENT AND RESTRUCTURING The Company presents as an additional IFRS measure, operating income before depreciation, amortization, impairment and restructuring, in the condensed consolidated statement of operations to assist users in assessing financial performance. The Company s management and Board use this measure to evaluate consolidated operating results and to assess the ability of the Company to incur and service debt. In addition, this measure is used to make operating decisions as it is an indicator of performance including how much cash is being generated by the Company and assists in determining the need for additional cost reductions, evaluation of personnel and resource allocation decisions. Operating income before depreciation, amortization, impairment and restructuring is referred to as an additional IFRS measure and may not be comparable to similarly titled measures presented by other companies. 4. BUSINESS ACQUISITION On November 27, 2017, the Company entered into an asset purchase agreement with Metroland Media Group and Free Daily News Group Inc., both subsidiaries of Torstar Corporation, (collectively, Torstar ) to acquire 22 of Torstar s community newspapers and two free daily commuter newspapers. In consideration, the Company sold 15 of its community newspapers and two free daily commuter newspapers to Torstar (the Torstar Transaction ). The Company is continuing to operate one of the community newspapers acquired and will close the remaining properties in January 2018 as they are located in areas serviced by multiple publications. The Torstar Transaction is a non-monetary transaction as there was no cash exchanged. The Company accounted for the non-monetary transaction as a business combination with the fair value of the properties transferred representing the acquisition consideration. The estimated fair value of the respective properties of both the Company and Torstar is $3.5 million and the difference between the acquisition consideration and the carrying value of the net liabilities transferred was recognized as a gain on disposal of operations in the consolidated statement of operations. In addition, during the three months ended November 30, 2017, the Company incurred severance costs of $3.1 million, provisions for onerous leases and contracts of $0.8 million and $0.7 million, respectively, and acquisition costs of $0.5 million related to the Torstar Transaction all of which are included in restructuring and other items in the condensed consolidated statement of operations (note 10). On November 27, 2017, the date of acquisition, the Company transferred the following net liabilities to Torstar and recognized a gain on disposal of operations as follows: Consideration transferred Prepaid expenses and other assets 36 Property and equipment 41 Intangible assets 600 Accounts payable and accrued liabilities (8) Deferred revenue (1,845) Net liabilities transferred (1,176) Acquisition consideration (fair value of net assets acquired) 3,500 Gain on disposal of operations 4,676 8

The fair value of the identifiable assets acquired and liabilities assumed as at November 27, 2017 were as follows: Assets acquired Prepaid expenses and other assets 60 Intangible assets (1) 3,552 Total assets acquired 3,612 Liabilities assumed Accounts payable and accrued liabilities 63 Deferred revenue 49 Total liabilities assumed 112 Net assets acquired at fair value 3,500 (1) The Company has not finalized the allocation of the $3.6 million of intangible assets acquired which may include mastheads, domain names and customer relationships. 5. RECAPITALIZATION On April 7, 2016, the Company announced that management, as overseen by an independent special board committee, was reviewing alternatives to improve its operations, capital structure and financial liquidity. On July 7, 2016, the Company announced a proposed recapitalization transaction which was completed on October 5, 2016 (the Recapitalization Transaction ) by way of a corporate plan of arrangement (a Plan of Arrangement ) under the Canada Business Corporations Act as described below. The Company redeemed $77.8 million aggregate principal amount of 8.25% Senior Secured Notes due 2017 ( First-Lien Notes ) at par, plus accrued interest of $10.8 million, from proceeds of the Recapitalization Transaction resulting in a total of $225.0 million First-Lien Notes outstanding. In addition, First-Lien Notes were amended and restated such that the maturity date was extended to July 15, 2021. During the three months ended November 30, 2016, the Company incurred $0.7 million of debt issuance costs related to the First-Lien Notes which are included in the carrying value of long-term debt on the condensed consolidated statement of financial position. The Company s 12.5% Senior-Secured Notes due 2018 ( Second-Lien Notes ) were exchanged for Class NC variable voting shares of the Company ( Variable Voting Shares ) that represented approximately 98% of the outstanding shares. Accrued interest of $21.9 million (US$16.8 million) originally due on July 15, 2016 was paid in cash upon completion of the Recapitalization Transaction. In addition, the Company issued US$88.6 million ($115.5 million) of 10.25% Second-Lien Secured Notes due 2023 ( New Second-Lien Notes ) for net proceeds of US$84.4 million ($110.0 million). The Plan of Arrangement included the offering of the New Second-Lien Notes to holders of existing Second-Lien Notes, on a pro-rata basis determined based on their holdings of Second-Lien Notes as at August 5, 2016. The New Second-Lien Notes offering was backstopped by certain individual funds for which Chatham Asset Management LLC acts as investment advisor ( Chatham ) pursuant to a backstop commitment letter (the Backstop Commitment Letter ). In consideration for entering into the Backstop Commitment Letter, Chatham received a fee of US$4.2 million ($5.5 million), which was used to acquire additional New Second-Lien Notes included in the US$88.6 million ($115.5 million) described above. During the three months ended November 30, 2016, the Company incurred debt issuance costs related to the New Second-Lien Notes of $0.3 million which are included in the carrying value of long-term debt on the condensed consolidated statement of financial position. As part of the Plan of Arrangement, the Class C voting shares and Variable Voting Shares of the Company ( Shares ) were consolidated on the basis of one Share for every 150 existing Shares then outstanding, all outstanding options, restricted share units and other rights to acquire Shares (except pursuant to the Postmedia Rights Plan) were cancelled and all outstanding deferred share units were settled for $0.4 million in cash. As part of the Recapitalization Transaction the Company issued 91,842,855 Variable Voting Shares resulting in a total of 93,717,199 Shares outstanding after the Share Consolidation. During the three months ended November 30, 2016, the Company incurred $0.2 million of share issuance costs which were included in the carrying value of capital stock on the condensed consolidated statement of financial position. 9

During the three months ended November 30, 2016, a gain on debt settlement of $78.6 million was recognized in the condensed consolidated statements of operations and represents the difference between the carrying value of the Second-Lien Notes of $354.1 million that were settled through the issuance of Shares and the fair value of Shares issued of $275.5 million. The fair value of the Shares was determined by the closing price of the Variable Voting Shares prior to the completion of the Recapitalization Transaction. During the three months ended November 30, 2016, the Company incurred $12.1 million of costs related to the Recapitalization Transaction, including the fee for the Backstop Commitment Letter, which are included in restructuring and other items in the condensed consolidated statement of operations. Included in these costs are advisory, legal and other professional or consulting fees, as well as compensation expense associated with a key employment retention program. 6. DIVESTITURE AND DISCONTINUED OPERATIONS On June 22, 2017, the Company entered into an asset purchase agreement with Meltwater News Canada Inc. to sell Infomart, its media monitoring division, for gross proceeds of approximately $38.3 million subject to closing adjustments, including adjustments related to certain consents (the Infomart Transaction ). The Infomart Transaction closed on August 15, 2017 and included Infomart s media monitoring business, direct feed business and professional services operations, including clients of such services. The net proceeds of the Infomart Transaction were used to redeem a portion of the First-Lien Notes at par in accordance with the terms and conditions of the amended and restated First-Lien Notes indenture (note 7). The Infomart Transaction includes the entering into of a transition support agreement for a period of up to 18 months. As a result of the Infomart Transaction, the Company has presented the results of Infomart as discontinued operations and as such, the condensed consolidated statement of operations and condensed consolidated statement of comprehensive loss have been revised to reflect this change in presentation. Net earnings from discontinued operations for the three months ended November 30, 2016 are as follows: 2016 Revenues Digital 4,089 Expenses Compensation 581 Other operating 1,423 Operating income before depreciation, amortization, impairment and restructuring (note 3) 2,085 Earnings before income taxes 2,085 Provision for income taxes - Net earnings from discontinued operations 2,085 Cash flows from discontinued operations for the three months ended November 30, 2016 are as follows: 2016 Cash flows from operating activities 2,085 Cash flows from investing activities (1) (2,085) Cash flows from financing activities - Cash flows from discontinued operations - (1) The cash flows from discontinued operations are transferred to the Company through a centralized cash management system resulting in cash flows from discontinued operations for the three months ended November 30, 2016 of nil. 10

7. RESTRICTED CASH Pursuant to the amended and restated First-Lien Notes indenture, any net proceeds from an asset disposition in excess of $0.1 million will be held in a collateral account by the first-lien noteholders. When the aggregate amount of the collateral account exceeds $1.0 million it will be used to make an offer to redeem an equal amount of First-Lien Notes. Restricted Cash August 31, 2017 67,751 Net proceeds on sale of assets (1) 9,911 First-Lien Notes payment (2) (71,955) November 30, 2017 (3) 5,707 (1) (2) (3) During the three months ended November 30, 2017, the Company sold property and equipment classified as held-for-sale on the condensed consolidated statement of financial position for net proceeds of $9.9 million and realized a gain on sale of $1.6 million. During the three months ended November 30, 2017, the Company used $72.0 million to redeem $69.5 million aggregate principal amount of First-Lien Notes and pay accrued interest of $2.5 million. During the year ended August 31, 2017, the Company received $36.3 million related to the Infomart Transaction of which $5.7 million, equal to 15% of the purchase price, is being held in escrow to satisfy claims arising under the purchase agreement for a period of up to 18 months (note 6). 8. IMPAIRMENT OF LONG LIVED ASSETS The Company s impairments for the three months ended November 30, 2017 and 2016 are as follows: 2017 2016 Intangible assets - mastheads - 7,100 Intangible assets - domain names - 610 Intangible assets - subscriber lists - 7,282 Property and equipment - land - 2,000 Property and equipment - building - 4,600 Impairments - 21,592 Impairment of long lived assets During the three months ended November 30, 2017, no impairments were recorded. During the three months ended November 30, 2016, as a result of continued economic and structural factors, including the uncertainty of the print advertising market and the rapidly evolving digital advertising market, the Company performed an interim impairment test. The recoverable amounts were based on fair value less costs of disposal ( FVLCD ) of the cash generating units ( CGUs ), which are primarily geographical groups of newspapers by city or region, as applicable. The FVLCD were determined by applying a market multiple range of 4.0 to 4.25 times the adjusted trailing twelve month operating income before depreciation, amortization, impairment and restructuring less disposal costs. Management determined this key assumption based on an average of market multiples for comparable entities. Based on the interim impairment test as at November 30, 2016, the Company determined that certain of its CGU s recoverable amounts were less than their carrying amount. As a result the Company recorded an impairment charge in the three months ended November 30, 2016 of $21.6 million which was allocated to its mastheads, domain names, subscriber lists, land and building of $7.1 million, $0.6 million, $7.3 million, $2.0 million and $4.6 million, respectively, within the individual CGUs. There were no tax impacts as a result of the impairment charges. The FVLCD measurements represent a Level 3 measurement within the fair value hierarchy due to required allocation of corporate costs and the estimated costs of disposal within the individual CGUs. 11

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES As at November 30, 2017 As at August 31, 2017 Trade accounts payable 14,082 13,675 Accrued liabilities 42,990 38,771 Accrued interest on long-term debt 5,638 7,332 Accounts payable and accrued liabilities 62,710 59,778 10. PROVISIONS Restructuring (a) Unoccupied leases (a) Other provisions (b) Provisions as at August 31, 2017 22,265 1,403 829 24,497 Charges 4,904 800 720 6,424 Payments (8,290) (219) (60) (8,569) Provisions as at November 30, 2017 18,879 1,984 1,489 22,352 Portion due within one year (18,879) (1,121) (660) (20,660) Non-current provisions - 863 829 1,692 (a) Restructuring and unoccupied leases During the year ended August 31, 2017, the Company completed cost reduction initiatives that included a Company-wide voluntary buyout program. During the three months ended November 30, 2017, the Company began new initiatives and incurred restructuring expense of $4.9 million which include both involuntary and voluntary buyouts as well as a provision for onerous leases related to unoccupied property of $0.8 million. (b) Other provisions Other provisions include unfavorable contracts, as well as provisions for certain claims and grievances which have been asserted against the Company and closing adjustments related to the Infomart Transaction. Total 12

11. LONG-TERM DEBT As at November 30, 2017 As at August 31, 2017 Maturity Principal Financing fees, discounts and other Carrying value of debt Carrying value of debt 8.25% Senior Secured Notes July 2021 142,051 (1,039) 141,012 220,527 10.25% Senior Secured Notes (US$97.0M) (1) July 2023 124,960 (241) 124,719 120,736 Senior Secured Asset-Based Revolving Credit Facility January 2019 14,000-14,000 - Total long-term debt 279,731 341,263 Portion due within one year (10,000) (79,502) Non-current long-term debt 269,731 261,761 (1) US$ principal translated to the Canadian equivalent based on the foreign exchange rate on November 30, 2017 of US$1:$1.2888 (August 31, 2017 - US$1:$1.2536). The terms and conditions of long-term debt as at November 30, 2017 are the same as disclosed in the consolidated financial statements for the years ended August 31, 2017 and 2016 except for the changes described below. During the three months ended November 30, 2017, the Company redeemed $79.4 million aggregate principal amount of First-Lien Notes (note 7). On January 18, 2017, the Company entered into a senior secured asset-based revolving credit facility ( ABL Facility ) with associated companies of Chatham, for an aggregate amount of up to $15.0 million, which may be increased by up to $10.0 million at our request and the consent of the lender. On October 19, 2017, the ABL Facility was increased to an aggregate amount of up to $25.0 million. As at November 30, 2017, the Company has $14.0 million outstanding and availability of $11.0 million on the ABL Facility and during the three months ended November 30, 2017, incurred and paid $0.1 million of interest expense. 12. EMPLOYEE BENEFIT PLANS The Company has a number of funded and unfunded defined benefit plans that include pension benefits, postretirement benefits, and other long-term employee benefits. The net employee benefit plan costs related to the Company s pension benefit plans, post-retirement benefit plans and other long-term employee benefit plans recognized in the condensed consolidated statements of operations for the three months ended November 30, 2017 and 2016 are as follows: Post-retirement Other long-term Pension benefits benefits employee benefits Total (1) 2017 2016 2017 2016 2017 2016 2017 2016 Current service cost 1,199 4,678 279 314 443 502 1,921 5,494 Administration costs 231 266 - - - - 231 266 Net actuarial (gains) losses - - - - 40 (587) 40 (587) Net financing expense 266 891 358 436 111 144 735 1,471 Net defined benefit plan expense (2) 1,696 5,835 637 750 594 59 2,927 6,644 Employer contributions to defined contribution plans 1,009 1,183 - - - - 1,009 1,183 Total plan expense 2,705 7,018 637 750 594 59 3,936 7,827 13

(1) (2) On March 9, 2017, the Company announced a number of changes to its employee benefit plans which include ceasing pension accruals for nonunion employees under all defined benefit pension plans and the discontinuation of retiree benefits for non-union active employees under all post-retirement benefit plans effective September 1, 2017. In addition, on April 19, 2017, the Company reached an agreement with certain union employees to discontinue retiree benefits for active employees effective December 31, 2017 and cease compensation increases for employees on the Company s self-insured long-term disability plan. Employees currently enrolled in defined benefit pension plans will be eligible to enroll in defined contribution pension plans. All current service costs, administration costs and net actuarial (gains) losses related to other long-term employee benefits are included in compensation expense in the consolidated statements of operations. Net financing expense is included in net financing expense relating to employee benefit plans in the consolidated statements of operations. Actuarial gains (losses) related to the Company s pension benefit plans and post-retirement benefit plans recognized in the condensed consolidated statements of comprehensive income for the three months ended November 30, 2017 and 2016 are as follows: Post-retirement Pension benefits benefits Total 2017 2016 2017 2016 2017 2016 Net actuarial gains (losses) on employee benefits (1) 15,393 37,101 (1,011) 3,787 14,382 40,888 Net actuarial gains (losses) recognized in other comprehensive income 15,393 37,101 (1,011) 3,787 14,382 40,888 (1) The discount rate used in measuring the Company s benefit obligations as at November 30, 2017 was 3.45% for pension benefits and postretirement benefits (August 31, 2017 3.6% and 3.65%, respectively). Changes to the net defined benefit plan obligations related to the Company s pension benefit plans, postretirement benefit plans and other long-term employee benefit plans for the three months ended November 30, 2017 are as follows: Pension benefits (1) Postretirement benefits Other longterm employee benefits Total (2) Net defined benefit plan obligation as at August 31, 2017 30,504 39,548 15,941 85,993 Amounts recognized in the statement of operations 1,696 637 594 2,927 Amounts recognized in other comprehensive income (15,393) 1,011 - (14,382) Reclassified from other assets (1,589) - - (1,589) Employer contributions to the plans (920) (639) (692) (2,251) Net defined benefit plan obligation as at November 30, 2017 14,298 40,557 15,843 70,698 (1) Pension benefits include the benefits earned after April 13, 2015 for four pension benefit plans created as part of the acquisition of the Englishlanguage newspapers of Sun Media Corporation completed in the year ended August 31, 2015 which provides defined benefit pension benefits to members from April 13, 2015 in accordance with the terms of their former plans. The Company has agreed to assume the defined benefit obligation accrued prior to April 13, 2015 contingent on the completion of an asset transfer from the former pension plans which is subject to the approval of the Financial Services Commission of Ontario ( FSCO ). In November 2017, FSCO approved an asset transfer of $16.5 million for the remaining plan, and as a result the Company has assumed the related defined benefit obligation of $16.2 million in the three months ended November 30, 2017. In addition, the Company agreed to reimburse the seller for any special payments made prior to the completion of all asset transfers and accordingly in the three months ended November 30, 2017 paid $0.1 million (2016 $0.1 million). (2) As at November 30, 2017 and August 31, 2017, the net defined benefit plan obligations are recorded in employee benefit obligations and other liabilities on the condensed consolidated statements of financial position. 14

13. EARNINGS PER SHARE The following table provides a reconciliation of the denominators, which are presented in whole numbers, used in computing basic and diluted earnings per share for the three months ended November 30, 2017 and 2016. No reconciling items in the computation of net earnings exist. 2017 2016 Basic weighted average shares outstanding during the period 93,717,199 165,818,986 Diluted weighted average shares outstanding during the period 93,717,199 165,818,986 14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Financial instruments measured at fair value The financial instruments measured at fair value in the condensed consolidated statement of financial position, categorized by level according to the fair value hierarchy that reflects the significance of the inputs used in making the measurements, as at November 30, 2017 are as follows: Financial assets As at November 30, 2017 Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Warrants (1) 4,365-4,365 - (1) On January 25, 2016, the Company entered into a marketing collaboration agreement ( Marketing Agreement ) with Mogo Finance Technology Inc. ( Mogo ). The Marketing Agreement provides the Company with revenue sharing and equity participation through warrants in Mogo in exchange for media promotional commitments over the next three years. As part of the Marketing Agreement, the Company paid $1.2 million for 1,196,120 five year warrants that entitled the Company to purchase common shares of Mogo at an exercise price of $2.96. Fifty percent of the warrants vest in equal instalments over three years and the remaining warrants vest in three equal instalments based on Mogo achieving certain quarterly revenue targets. During the three months ended November 30, 2017, the Company recognized a gain of $3.1 million related to the warrants which is included in gain on derivative financial instruments in the condensed consolidated statements of operations (2016 - $0.2 million). The fair value of the warrants are determined by the Black-Scholes option pricing model using Level 2 market inputs, including exercise price, risk-free interest rate, life, dividend yield and volatility. The Company s policy is to recognize transfers in and out of the fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the three months ended November 30, 2017 and 2016 there were no transfers within the fair value hierarchy. Financial instruments measured at amortized cost Financial instruments that are not measured at fair value on the consolidated statement of financial position include cash, restricted cash, accounts receivable and accounts payable and accrued liabilities. The fair values of these financial instruments approximate their carrying values due to their short-term nature. 15

The carrying value and fair value of long-term debt as at November 30, 2017 and August 31, 2017 are as follows: Other financial liabilities As at November 30, 2017 As at August 31, 2017 Carrying value Fair value Carrying value Fair value Long-term debt 279,731 286,857 341,263 363,156 The fair value of long-term debt is estimated based on quoted market prices (Level 1 inputs). Liquidity risk Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations associated with existing and future financial liabilities that are and will be settled by delivering cash or another financial asset as they come due. The Company s financial obligations include long-term debt which requires principal repayments and interest payments (note 11). Economic and structural factors related to the industry impact the Company's ability to generate sufficient operating cash flows to satisfy its existing and future financial liabilities, however, the Company manages this risk by monitoring cash flow forecasts, implementing cost reduction initiatives, deferring or eliminating discretionary spending, monitoring and maintaining compliance with the terms of the note indentures, identifying and selling redundant assets including certain real estate assets and utilizing the ABL Facility to provide additional liquidity during seasonal fluctuations of the business. Foreign currency risk As at November 30, 2017, approximately 44% of the outstanding principal on the Company s long-term debt is payable in US dollars (August 31, 2017 35%). As November 30, 2017, the Company has US$97.0 million New Second-Lien Notes outstanding (August 31, 2017 - US$97.0 million). 15. STATEMENT OF CASH FLOWS The following amounts compose the net change in non-cash operating accounts included in cash flows used in operating activities in the condensed consolidated statement of cash flows for the three months ended November 30, 2017 and 2016: 2017 2016 Accounts receivable (12,733) (15,853) Inventory 241 386 Prepaid expenses and other assets 470 (531) Accounts payable, accrued liabilities and provisions (3,302) (6,915) Deferred revenue (1,219) (1,144) Employee benefit obligations and other liabilities and provisions 872 (497) Changes in non-cash operating accounts (15,671) (24,554) 16. RELATED PARTY TRANSACTIONS Upon completion of the Recapitalization Transaction, Chatham owns approximately 61,166,689, or 65%, of the Company s Shares. In October 2016, the Company entered into a consulting agreement with an associated company of Chatham and incurred an expense of $0.5 million during the three months ended November 30, 2017 (2016 - $0.3 million) which is included in other operating expenses in the condensed consolidated statement of operations. In addition, the Company has an ABL Facility with associated companies of Chatham (note 11). 16